Making India Flat

Three years ago, I heard Thomas Friedman speak at TiEcon 2005, the annual conference of The Indus Entrepreneurs, the South Asian networking organization for entrepreneurs, born in Silicon Valley, and now a global force. The conference kicked off with a keynote address by Thomas Friedman, the international affairs correspondent for the New York Times, whose travels to India, China and elsewhere led him to write The World Is Flat. As is well known, Friedman means that the global economic playing field has been leveled by advances in technology, coming on the heels of political developments that spurred economic policy reforms. The Internet, World Wide Web, supporting physical infrastructure, and collaborative software applications layered on top of these, have changed the manner in, and extent to which, people in India, China and Eastern Europe can and do participate in the global economy.

The title phrase for the book apparently came from an observation of Nandan Nilekani, the CEO of Infosys, one of India’s flagship IT (information technology) companies. Friedman’s perspective is US-centric: people in the US will now face a different kind of global competition for jobs, careers and lifestyles. He puts it quite picturesquely: earlier parents in the US might tell their children to finish what was on their plate, since children in India and China were starving. Now, American parents should tell their children to finish their homework, since those Indians and Chinese are starving for their future jobs. This American perspective also means that, even if 150 million people in emerging economies are capable of competing globally, that is enough to make a difference – that matches the size of the US labor force.

However, as Friedman no doubt realizes, this will not be good enough for India and China. The world will not truly be flat until these countries themselves are flat. I will put aside China (not to speak of Latin America and Africa), and focus on the country I know best. India is a still a long way from flatness.

How can India become flat? An obvious intermediate step is to make sure everyone has basic levels of health, nutrition and education, and provide broad access to higher education, credit, and certain types of insurance. Where disputes arise in India is in how to even get to this point. We know by now that the government cannot easily achieve this. In The Federalist, No. 51, James Madison put it thus: “If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary.” This statement is in Madison’s argument for checks and balances, and for decentralization, but also has implications for thinking about the benefits of competitive markets. When India’s constitution was being written, people like Dr. B.R. Ambedkar had no illusions about the shortage of angelic qualities in the Indian village, but the framers of that document did seem to think they were somewhat closer to the angels, and set in place institutions that they hoped would flatten India from the top down. That did not work as well as they hoped or expected.

India is in the process of dramatic changes, which go beyond simply taking the government out of its misguided attempt to occupy the commanding heights of the economy. Economic activity driven by private sector competition rather than government control and monopoly has led to a flatter India. One only has to see the diversity of backgrounds of those who have succeeded in India’s IT industry to see the truth of this.

Ceding some policy space to state governments by the central government has also flattened India in some ways, though some of the poorer states have fallen further behind. Ongoing reform and strengthening of local government will, in the long run, flatten India too, moving the country away from an administrative and governance system that retained too many features of the colonial (or even Mughal) era. Local governments have the potential to be more responsive to local needs for basic schooling, sanitation and health care, if true democratic participation is enabled, and efficient revenue sources enabled and developed.

However, go back to Friedman’s observation on what made it possible for Bangalore to compete with Silicon Valley. The driving force was the enormous expansion in communications and collaboration made possible by IT. Of course, Bangalore was ready to take advantage of the opportunities that opened up: it had relatively abundant human capital from nearby research and educational institutions. The problem for less-well-endowed towns like Bathinda and Baroda, or all of backward states like Bihar, may be much greater. Capabilities have to be built up before opportunities for participating in the global marketplace can be exploited. But IT helps here as well. I have seen this in my own fieldwork, in many villages in India, where even a single Internet-enabled kiosk can become an information services hub, providing education, health services, guidance for farmers, and much more.

The economics is simple, once one thinks about it. In rural India, high transaction costs not only reduce the efficiency of functioning markets, but they also preclude some markets all together. Bringing down those transaction costs through IT enables these rural markets to function, raising productivity and growth. One can build an abstract model to show this (and I have done so), but the reality is powerful enough. Some journalists have extolled the importance of cell phones, which have finally taken off in India, and down-played rural computers, but they miss the point. All kinds of digital communication, storage and processing devices are important, and they often serve different functions. Desktop computers offer advantages in terms of information gathering and richness of content, while cell phones have mobility and convenient voice communication.

What will be important for flattening India is scaling up from the relatively small experiments that are taking place, and this requires organization-building and entrepreneurship (check out what n-Logue and Drishtee have achieved, for example). Put commercially sustainable information kiosks in 250,000 villages (with government support for infrastructure, perhaps, but keeping it out of operations) and this will be another significant step in making India flat. And this is a route that does not rely on redistribution and zero-sum thinking.

7 Responses to "Making India Flat"

Guest August 20, 2008 at 2:17 am

I think India becoming a great economy are far fetched stories. The GDP figure is basically an accounting gimmick.The country witha. -ve real interest rates,b. inverted yield curve,c. huge and growing deficitscan never aspire to become a great economy.Thoughts ?

Anonymous August 20, 2008 at 2:44 am

What’s really worrying is that fiscal authorities have an ostrich like attitude to off-budget borrowing. As long as the on-budget stuff looks alright thye don’t really care what goes on off-budget.Bringing the off-budget stuff above the line is good, accountable, transparent and responsible practice. This should be a simple cabinet decision. Instead it will be left to another high powered commission that will take several million indian man hours to formulate, opine and write a thousand page report on …and which will ultimately get shelved somewhere in the labyrinthine beedi-smelling rooms of north-block, or the paan stained storage rooms of RBI HQs in Bombay’s fort area.So, yes greatness is a great many years away. These guys need to worry about how long they can hold on to the IG rating.Cheers.

Anonymous August 20, 2008 at 5:24 am

To say that Bangalore has in anyway been able to compete with Silicon Valley is far from the truth. Silicon Valley has a risk taking ethos that has never been duplicated in Bangalore. The ability for innovative, strategic and creative thinking including the institutions that are needed to support it are just not available. The successful IT story is just a mere exploitation of the $ – Rs imbalance.

Dr. Dan August 20, 2008 at 6:15 am

I sometimes wonder if there is anything great about the Indian economy apart from the IT (blr). ?I know they are a decent producers of sugar & Rice but thats no acheivement. What else will the 1 billion people do ? So agri produce is nothing but masses trying to do some work.Apart from the above is there something unique about India ?

Rajiv B Deo August 23, 2008 at 10:38 pm

IT story of India is over played. IT organizations of India never bothered to create intellectual property or leverage innovation. IT organizations have ZERO risk apetite and are not interested in investing in the R&D or hiring innovative people. Western culture biased soft skills are given un-due importance. We should build on our strong Indian heritage.In my view, the economic failure for India comes from overall lack of will to do proper civil administration, not developing right policies / strategies and taking long time to implement basic infrastructure.

Anonymous August 24, 2008 at 12:43 am

many indians i have met are thrilled to have better managed immigration counters at Bombay’s int’l airport. that’s the extent of better civilian administration for you. sure there are new airports now in hyderabad and bangalore, but these lack integrated planning (too long/difficult to get to them from downtown areas of these cities). There are simply too many roadblocks, and everybody and their grandmother protest about all manner of real/imagined grievances and injustices. and when they come out on the streets, things slow down more or more shortcuts or appeasements will have to be found.there is a dire need to have more markets forces and much speedier (and effective) court decisions. in a non-authoritarian country, these are the lubricants of economic development and business. In the absence of such mechanisms, things will remain dependent on payoffs, demonstrations –not recipes for greatness.

Dr.Dan August 25, 2008 at 12:12 am

“out on the streets, things slow down more or more shortcuts or appeasements will have to be found.” sums up Living in India nicely.